Buy Mahindra and Mahindra; target of Rs 1016: Motilal Oswal

Motilal Oswal's research report on Mahindra and Mahindra

Volumes grew by 3.7% YoY, with UV volumes increasing 5% YoY and Tractors volumes declining 4% YoY. Realizations grew 2.6% YoY (-0.9% QoQ) to ~INR559.5k (our estimate: INR563.7k). Net sales (incl. MVML) increased 6.4% YoY to INR127.9b (in-line). EBITDA declined 4% YoY to INR18.5b (our estimate: INR19.7b), with the margin contracting 150bp YoY (-130bp QoQ) to 14.5% (our estimate: 15.3%). Auto PBIT margin shrank 160bp QoQ (-270bp YoY) to 7.9%. Tractor EBIT margin contracted 110bp QoQ (-70bp YoY) to 20.2%. Adj. PAT increased 19% YoY (+35% QoQ) to INR16.7b (our estimate: INR13.9b).

Outlook

The stock trades at 16.4x FY20E and 14.2x core EPS. Maintain Buy with an SOTP-based TP of INR1,016 (Sep-20).